Hertler Market Signal Update

#684 April 6, 2014

Editor, Wally Hertler

Possible Fear Index buy signal, other indicators mixed

The Smart Money Index made another new low, thus confirming its long term down-trend. The inverse relationship with stock prices makes the bearish trend for the SMI bullish for stocks.

The late market component (LMC) of the Smart Money Index rallied off its low, but the downtrend seems to be intact.

The EMC (early market component of the SMI) surged to another new high.  This is bullish.  Although in theory the EMC is supposed to represent the dumb money – the emotional traders – it is apparent that the EMC correlates very well with the S&P 500.

          Barron’s Confidence Index at 72.5 remains below the 50-week moving average, which is bearish.

The smart money OEX put/call ratio has fluctuated in a range that could be defined as bearish around 1.9 and bullish around 1.4. But, the ratio seems to have established a new, lower range as it did during 2008-2011. It has peaked and dropped about half way to the lower limit of the new range, which should occur at a market low.

The “smart money” OEX 15-day P/C open interest slipped a bit last week and is possibly turning to a downtrend. It is bullishly low.

            The equity put/call ratio fell back through the descending trend line, which is bearish. But it is mimicking the behavior off the February market low.

            The total put/call ratio climbed above the level seen at the early February market low, and then it turned down. It remains in the lower range of its past four years which is bearish, although it did briefly surpass its peak of bearish sentiment at the February market low, which should be bullish.

The small cap/DJIA broke down sharply as it often does as market corrections are getting underway.

            The ratio of the NASDAQ Composite to the S&P 500 continues to plunge toward support at 2.2. Drops of this magnitude often are finished at a market bottom.

            The Fear Index 5-DMA, instead of plunging decisively through the 50-day moving average (buy signal) as with earlier buy signals, has crept along the 50-DMA and slipped below last week. So we will call it a “tentative buy”, pending a meaningful penetration to the downside.

          The AAII Member Bullish Oscillator continues to fall toward zero and remains somewhat bearish.

            The Citigroup Panic/Euphoria Model (from Barron’s) dropped to 0.58, but it remains within the Euphoria Zone. This is the only extended excursion into the Euphoria region since the bull market began in March 2009. It is bearish.



The Fear Index gave a very tentative buy signal.

Barron’s Confidence Index is bearish.

The (dumb money) equity and total put/call ratios are behaving as they did at the February market low, which is bullish.

The smart money OEX put/call ratio, although low, can be considered bearish relative to recent performance.

The Citigroup Model is in the Euphoria region and just off the highest level since the start of the bull market. It continues to be bearish.

The AAII members’ bullish oscillator is falling, but still somewhat bearish.

The relative strength of the small caps and the NASDAQ Composite Index is bearish.

The Smart Money Index remains in a long-term down-trend, which is bullish for stocks long term. The sharp drop in the SMI is due to the very heavy selling by the smart money LMC and heavy buying by the EMC – a seemingly very bearish scenario. The divergence of the LMC and EMC is extreme!